Pro Perspectives 2/18/20

February 18, 2020

For markets, a threat like the coronavirus doesn’t have to go away for markets to move on from it.  The worst case scenario (global pandemic) just has to be taken off of the table.  

We’re not there yet.  But as we’ve discussed over the past couple of weeks, for markets, the “unknown” about the coronavirus is being overwhelmed by the “known” of how central banks will respond. 

If there is one thing we’ve learned from the events of the past decade, it’s that central banks will do, in coordination, “whatever it takes” to keep the global economy going, when faced with global crises. 

In this case, central banks are responding, again, led by the PBOC. 

Remember, as we’ve discussed, the elaborate measures taken by China earlier this month, to shore up the economy and financial markets, were a big deal, not just for Chinese markets but for global financial markets. 

And with over a quarter of a trillion dollars injected into the Chinese financial system, we talked about the likelihood of that money being put to work, not only to stabilize global equity markets, but to start stockpiling cheap commodities again (as they did in 2010-2011). 

With that, on a day where a decline in stocks were making headlines, commodities were on the rise.  Palladium was up by 11%.  Natural gas was up by 7%.  Gold was up over 1%.  Oil was up.  And copper (a typical proxy on global economic sentiment) was up, not down.  

With that, let’s take a look at a chart on the CRB index (the broad commodities index)…

You can see the path for broad commodities, since the PBOC rolled out their policy response (on Feb 3rd).  The path has been UP.